Honolulu's GO Bonds: A Safe Harbor in Rising Rate Seas

As interest rates hover near historic highs and economic uncertainty looms, investors seeking stable, tax-exempt yields are increasingly turning to municipal bonds. Among the most compelling opportunities today is Honolulu's Series 2025 GO bond issuance, which combines a rock-solid AA+ credit rating, strategic alignment with federal transit goals, and a project timeline designed to mitigate risk. With the retail order window opening July 15 and institutional orders starting July 28, now is the time to act—before rising rates erode yields.

The Creditworthiness Case: AA+ Backed by “Full Faith and Credit”

Honolulu's GO bonds are rated AA+ by S&P Global Ratings, with Fitch expected to follow suit, reflecting the city's fiscal prudence and economic resilience. This rating places Honolulu among the top-tier issuers, just one step below AAA. The bonds are backed by the city's “full faith and credit,” meaning repayment is guaranteed by Honolulu's taxing power—a critical buffer in volatile markets.

The AA+ rating is no accident. The city's financial management has been lauded for prudent debt refinancing and infrastructure prioritization. For instance, the $733.4 million 2025 bond issuance includes $9.4 million for the Skyline rail project's expansion, funded alongside $75.4 million for broader capital improvements. Refunding older bonds (via Series 2025D-G) will slash interest costs, further strengthening cash flows.

Phased Completion: A Roadmap to Certainty

The Honolulu Rail Transit Project's phased rollout reduces execution risk, a key advantage for bond investors. The first segment, completed in June 2023, is already operational, transporting over 3,300 daily riders. The second segment, linking Aloha Stadium to Middle Street Transit Center, is on track for late 2025 service, with third-rail testing underway. The final phase, extending to Civic Center, is slated for completion by 2031—a timeline validated by federal authorities.

This staggered approach ensures incremental progress, minimizing the risk of delays or cost overruns that plagued earlier phases. The October 2025 completion milestone for Segment 2 is a near-term catalyst, while the 2031 endpoint aligns with long-term infrastructure needs, ensuring the bonds remain relevant over their 25-year maturity.

Federal Alignment: A Tailwind for Stability

The rail project's $125 million in federal funding secured via the 2022 Recovery Plan underscores its strategic importance. By aligning with federal transit priorities—such as reducing traffic congestion and improving public transit access—Honolulu secures not just capital but political support. This alignment insulates the project from abrupt funding cuts, a critical factor for bondholders.

Why Act Now? Timing the Rate Cycle

With the Fed's benchmark rate at 5.5% and expectations of further hikes, now is the last window to lock in low borrowing costs before rates climb further. The Series 2025 bonds offer tax-exempt yields (federal and state of Hawaii), making them especially attractive for high-income investors.

The July 15–28 order period is narrow, and demand is likely robust. Institutional investors will have a second chance on July 28, but retail investors should move swiftly. Once the bonds close on July 31, yields will reset based on market conditions—potentially higher if rates rise.

Investment Thesis: Low Risk, Steady Returns

• Credit Quality: AA+ rating with a stable outlook.
• Project Track Record: 2023 segment success builds confidence in future phases.
• Diversification: Tax-exempt yields shield portfolios from federal and state taxes.
• Liquidity: Institutional demand ensures secondary market stability.

The only downside? Missing the window.

Final Take

Honolulu's GO bonds are a rare blend of safety, yield, and strategic foresight. With federal backing, a proven project timeline, and a city committed to fiscal discipline, these bonds offer a hedge against rising rates and economic volatility. For income-oriented investors, this is a chance to secure tax-free returns with minimal risk—provided they act before the July windows close.

Act now, or risk being left behind.

Data sources: S&P Global Ratings, Honolulu Authority for Rapid Transportation (HART), City & County of Honolulu Finance Department.